FICO’s New Credit Score Making It Easier To Get Home Loan

FICO released a new way to score credit: UltraFICO. Potential borrowers – especially those in the 500 to 600 FICO score range or who have little to no credit history – may be able to qualify for mortgages they previously didn’t qualify for. UltraFICO does this by helping to establish credit based on banking and savings activity, rather than credit cards, loans, and other debt.

How may this affect getting a mortgage?

Here’s how:

For potential borrowers, enhancing credit scores with UltraFICO may help them qualify for a mortgage they previously did not qualify for. It may even improve the terms of a loan or open up new financial opportunities when it comes to the details of a loan. UltraFICO may act like a “second-chance score” to benefit two main groups of consumers:

  • Those with little-to-no credit history.
  • People rebuilding credit after a personal financial breakdown.

For lenders, UltraFICO allows them to enhance a borrower’s traditional FICO credit score by pulling non-traditional financial information. For borrowers in the 500-600 range, this could turn a “no” into a “yes.” Lenders use financial details previously not visible on a traditional credit report:

  • Evidence of saving money
  • Maintaining a bank account over time
  • Avoiding a negative balance in an account
  • Regularly paying bills
  • Making other bank transactions

The new score may impact approximately 15 million consumers. It may help those consumers who currently don’t have the debt history required for a traditional FICO credit score.

The new UltraFICO Score is scheduled for launch as a pilot program in early 2019. It is expected to be available to lenders by mid-2019.

Unmarried Home Purchase: What You Need To Know

It’s common for unmarried couples to want to buy a home. Married or not, it is possible. Buying a home is one of the most significant financial decisions of your life, so it’s important to understand the details of buying a house as a couple.

Here are four things you should plan for when buying a home as an unmarried couple:

Thoroughly Discuss Your Finances

It’s very beneficial for couples to discuss each other’s financial situations in detail. Before meeting with a lender or realtor, it’s imperative that you review each other’s credit score, income, debts, and financial history. Most differences between your finances can be accommodated, so it’s important to know the details of each other’s finances in case any surprises arise. This step will prevent any conflict during or after the mortgage process.

Determine Your Costs and How to Split Them

It’s essential to have a system in place to split bills and other expenses. This is even more critical when buying a home. First, figure out how to divide the down payment and closing costs when purchasing the home. Then, discuss and decide how to handle the monthly mortgage payments, utilities, and other costs associated with owning a home (emergency repairs, maintenance, taxes, etc.).

You may want to work this out together with a real estate attorney and get the details in writing to keep things on record. If you don’t already have a joint bank account, it may be a good idea to at least create one for funding the home while keeping your other funds separate.

Understand Your Ownership Options

You may not have known that there are options for the purchase of your home. Deciding on which ownership option suits you may be one of the most important decisions in the process. Your home’s title can be configured in a few different ways, depending on which state you live in:

Joint Tenancy: You both equally own the property. Common between husbands and wives, joint tenancy allows one of you to inherit the property if something should happen to the other.

Tenancy in Common: You both own a specific percentage of the property. For example, you may own 40% of the property while your significant other owns the other 60%. If something happens to one of you, the ownership will transfer to whoever is denoted in a living will or trust. If there is no will or trust, ownership goes to the next of kin and not your significant other.

Sole Ownership: Some couples may find that it’s better just one of you to have full ownership of the home. If you have better credit than your significant other or are in a better place financially, this may work for you.

Create a Backup Plan

Sometimes things don’t work out as planned and, legally speaking, there are no protections in place for unmarried couples who co-own a home. We recommend creating a partnership agreement. Similar to a prenuptial agreement this will detail what happens to the home if you two split up. Written contracts are the best way to plan so we recommend you take any chance you get to draw up your agreements in writing.

Do you have questions or would you like to sit down for a complimentary no-obligation consultation? We are your Home Loan Experts, at your services. Give us a call 520-495-0222.

Home Loan APR and Interest Rates

We understand that the mortgage process can be complex. Two key aspects of a mortgage – or really any loan – are the annual percentage rate (APR) and the interest rate. Many homebuyers, especially first-time homebuyers, may not know the difference between APR and interest rate, but with our guidance, understanding these two different costs of a home loan will be a breeze.

Interest Rate vs. APR

Interest Rate: The cost of borrowing the principal loan amount (the amount of money you are being loaned) is called the interest rate. It can be fixed or variable, but it is always expressed as a percentage.

APR: Includes the interest rate plus other costs such as fees, discount points, and some closing costs. Simply put, it is a broader measure of the cost of a mortgage. Like the interest rate, APR is always expressed as a percentage.

How does this affect your mortgage?

The interest rate calculates what your actual monthly mortgage payment will be. The APR on a loan measures the total cost of a loan. For example:

Staying for a while: Given a 30-year fixed rate loan, it makes more sense to take out a loan that has the lowest APR possible, if you plan on staying in your home for the 30-year term. You will end up paying a lower amount over the 30 years.

Not ready to settle down: It may make sense to pay fewer upfront fees at a higher rate, and a higher APR, if you don’t plan on staying in the home for more than a few years. That way the total cost will be less over the short time you are in the home.

If you have any questions about APR or interest rates, don’t hesitate to contact us!